The Texas Squeeze: A series examining the high cost of high growth in North Texas.
Mortgage rates are on the rise, marking an end to the record lows seen the past couple of years. That’s causing a perfect storm for buyers when coupled with rising home prices and overall inflation.
The average rate for a 30-year fixed-rate mortgage loan reached 5% for the first time in more than a decade in April and has since increased to 5.3% as of May 12, according to Freddie Mac.
At December’s 3.11% rate with a 20% down payment, the principal and interest for a $350,000 home would have been $1,197 per month before taxes and insurance, according to an estimate from Bankrate.
At 5.3%, a home at the same price would have a monthly payment of $1,554. That’s a difference of $357 in less than five months.
The median sale price of a home in North Texas has reached $400,000, according to the Texas Real Estate Research Center at Texas A&M University. Last May, the $340,000 median-priced home with the interest rate of 3% would have had a monthly payment of $1,146. Today, a median-priced home would cost $474 more, or $1,776 per month.
Mortgage rates have been higher in previous decades, but it’s the combination of the rates with the competitive market that’s proving to be difficult. Jennifer Salazar, senior loan officer for Fairway Independent Mortgage Corp. in Garland., said first-time homebuyers are feeling the most pressure and some have been priced out entirely.
“We are all having to have hard conversations, and I don’t think Realtors or lenders know how to say you’re in a market where you may never be able to buy something,” Salazar said. “I don’t think anybody really knows how to say that in a nice way right now.”
A recent survey from Bank of America found that to get a home, the majority of prospective buyers are willing to reconsider their neighborhood and the distance from entertainment, restaurants and shopping.
“Clients are having to decide what they’re willing to sacrifice in order to be able to afford that higher payment,” said Greg Howe, vice president and lending market leader for Bank of America in Dallas-Fort Worth.
“As those rates climb, it reduces your buying power in a way that — in a market like this, where you add those other variables — it can be really impactful,” said Bryan Pacholski, senior managing director for Compass in Dallas.
The Mortgage Bankers Association is forecasting that rates will “plateau near current levels,” the organization’s chief economist, Mike Fratantoni, said in a statement May 5. That would be welcome news for buyers in North Texas’ competitive market.
Maryam Hamadu, a first-time homebuyer who works in the health insurance industry, has had to expand her search as far as Wylie and Princeton to stay within her budget of $450,000 or less. She paused her search from February to December last year, frustrated that she couldn’t find a home she liked in her price range in or around Plano.
“It dawned on me that I couldn’t afford to get a place here by myself,” Hamadu said.
When she began her search last January, mortgage rates were less than 3%. To get ahead of further increases both in rates and home prices, she decided to get moving again in the winter.
She is also focusing on new construction — even with the possibility of being on a waitlist for up to a year — to avoid the unpredictability of bidding on a home and paying far above asking price.
“I decided I needed to start back up again before things get worse,” Hamadu said.
Bank of America found that 40% of buyers say interest rates being too high is one reason they might be hesitant to buy. Still, the low supply of homes on the market and the high prices may be bigger factors on many buyers’ minds. Howe said the rates haven’t had much of an impact on overall demand in his office.
“We have a lot of clients still interested in buying,” Howe said. “The biggest issue they’re having right now is just getting their offer accepted, as there just isn’t enough supply in the market.”
Another first-time buyer, Kevin Turner, said he has made offers on around 20 houses since last year and has encountered situations where paying $30,000 to $50,000 over asking price hasn’t been enough. The rising mortgage rates haven’t affected his ability or desire to buy so far, but he said that could change over the next six months.
“But if anything, if the interest rate goes up, there’s a part of me going, well, maybe that’ll make competition slow down a little bit,” he said. “I haven’t seen that, though.”
Turner said he regrets not jumping into the market in 2020 when the rates were super low and prices weren’t as intense — a suggestion by his girlfriend, who predicted the market would explode the next year.
“She’s not a financial or real estate expert, but man, she called it,” Turner said. “I probably should have listened to her.”